The Libyan intelligence agent convicted of killing 270 people in the Lockerbie bombing has dropped his appeal, despite always denying he carried out the UK's worst terrorist attack.

Abdelbaset al-Megrahi is terminally ill with prostate cancer, and it is understood he decided to abandon his appeal in a deal brokered by the Libyan and Scottish governments allowing him to fly home next week to die with his family.

Megrahi's lawyers will formally apply to abandon his case at the appeal court in Edinburgh on Tuesday, just as the Scottish cabinet meets in Aberdeen to discuss proposals from the justice secretary, Kenny MacAskill, to send him home.

These events suggest Megrahi could fly home to Tripoli the same day, provoking accusations that a "special deal" had been struck to cover up the case.

The issue of his release has caused a transatlantic rift, with US officials and victims' families demanding Megrahi serves his sentence. US Secretary of State Hillary Clinton urged MacAskill not to release Megrahi in a phone call, her spokesman said last night.

Relatives of the 270 passengers, crew and people of Lockerbie who were killed after Pan Am flight 103 blew up in midair on 21 December 1988 were also critical of the deal. US relatives were furious, insisting Megrahi was guilty and should die in jail, but British relatives and the Scottish National party MSP Christine Grahame said ministers must hold a public and independent inquiry into the attack.

Pamela Dix, a prominent British relative whose brother Peter was a passenger on the flight, said she was "really disappointed" and "frustrated" at Megrahi's decision to drop the appeal. "These questions are still out there: what was the motivation for the bombing, who ordered it, who carried it out and who was at the top of the chain of command," she said.

Martin Cadman, of Burnham Market in Norfolk, who lost his son Bill, 32, in the bombing, said: "I would wish to know the reason for Megrahi withdrawing his appeal. It's a very suspicious development."

A Scottish government spokeswoman said claims that Megrahi was pressured were "baseless and ill-informed".

Megrahi's lawyers have said they can prove he was framed for the bombing. They claim they can disprove key scientific evidence and show that evidence against Syrian-backed Palestinian terror groups was deliberately suppressed.